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Health Care Reform – A Brief Look at Two Arising Issues



            As you no doubt recall, in late March of this year President Obama signed sweeping legislation overhauling the health care system.  This legislation is commonly referred to as the “Health Care Reform,” or more formally “The Patient Protection and Affordable Care Act of 2010 as amended by the Health Care and Education Reconciliation Act of 2010.”  The intent behind the legislation is to improve the quality of care in America and provide millions of Americans with access to health insurance coverage.  The law presents a host of new legal requirements, health insurance reforms, and the massive expansion of the federal and states’ health care authority.  While it is still much too early to determine the legislation’s success in achieving its purported intent, we can begin examining some of the effects that have become apparent since the legislation was signed into law. 

Beginning with this article and continuing with future articles, we will attempt to focus on a few key issues that have arisen or been clarified through the issuance of interpretative regulations.  In this article we will (1) examine the effect on the Federal self-referral law (more commonly know as the Stark laws), and (2) review the constitutional challenges that have been launched against the legislation.

Federal Self-Referral Law (“Stark”)


One of the effects of the Health Care Reform that is approaching is an expansion of physician disclosure requirements under the In-Office Ancillary Services exception to Stark.[1]

Stark prohibits physicians (or their family members) from referring certain designated health services to any entity where a financial relationship exists between the referring physician and such entity.  This prohibition only applies if services are provided to Medicare, Medicaid, TRICARE, or other federally funded patients (“Program Patients”).  In addition to the prohibitions, exceptions have been created allowing arrangements that are prohibited under Stark to avoid violating Stark by meeting each and every requirement of the exception.  One such exception is the “In-Office Ancillary Services” exception, which allows physicians to provide designated health services within the office of the physician or group practice.  There are limitations on who can furnish the service, where the service can be performed, and who can bill for the service. 

The Health Care Reform expands the In-Office Ancillary Services exception to include an additional requirement that physicians must make certain disclosures to patients.  This additional disclosure requirement is only applicable to the designated health services magnetic resonance imaging (“MRI”), computed tomography (“CT”), and positron emission tomography (“PET”).  Simply, referring physicians must inform patients that they may obtain the services (MRI, CT, PET) from someone other than the referring physician or someone in the physician’s group and must also provide the patient with a list of suppliers who furnish such service.[2]  

In implementing this expansion, Centers for Medicare and Medicaid Services (“CMS”) has issued Calendar Year 2011 Physician Fee Schedule Proposed Rule in an attempt to clarify what is required to comply with the disclosure requirement.  In the proposed rule, CMS has stated that the following will be required to meet the disclosure requirement:

  • The disclosure notice must be given to the patient at the time of the referral;
  • A record of the patient’s signature on the disclosure notice must be maintained as an element of the patient’s medical record;
  • The disclosure notice must indicate to the patient that the services may be obtained from a person other than the referring physician or his or her group practice;
  • The disclosure notice must provide patient a list of at least 10 suppliers within a 25 mile radius of the physician’s office location;[3]
  • The disclosure notice must include the supplier’s name, address, phone number, and distance from the physician’s office location at the time of referral; and
  • Nothing on the notice or supplier list may indicate to the patient that they must receive the services from a supplier on the list if not receiving it from the referring physician. 

It is important to note that the above requirements have only been proposed by CMS and may change when the Final Rule is published on or about November 1.  CMS has received comments through August regarding the proposed rules and should be analyzing them in an effort to draft the Final Rule.  CMS is anticipating a January 1, 2011, effective date for these disclosure requirements to apply so the Final Rule should be closely monitored so proper notices can be prepared accordingly. 

Constitutional Challenges

            As many had previously predicted, since its enactment constitutional challenges have commenced against the Health Care Reform.  The challenges focus on the application of the mandate that requires individuals to obtain health insurance or otherwise be penalized. 

            State of Virginia Challenge

The first challenge came from the Commonwealth of Virginia, who argues that the provision in the Health Care Reform requiring individuals to obtain health insurance or be penalized exceeds the Government’s power under the Constitution.  Specifically, Virginia argues that the Constitution’s Commerce Clause, which gives the Government the right to regulate interstate commerce, does not extend to an individual’s choice not to participate in economic activity.  Virginia also argues that the provision exceeds the Government’s authority to tax for the general welfare.  In response, the Government filed a motion asking the Court to dismiss the case on the basis that Virginia’s complaint failed to include viable claims. After review of extensively researched briefs and oral arguments in support of both sides position, the Court denied the motion, stating:

While this case raises a host of complex constitutional issues, all seem to distill to the single question of whether or not Congress has the power to regulate — and tax — a citizen’s decision not to participate in interstate commerce.  Neither the U.S. Supreme Court nor any circuit court of appeals has squarely addressed this issue.  No reported case from any federal appellate court has extended the Commerce Clause or Tax Clause to include the regulation of a person’s decision not to purchase a product, notwithstanding its effect on interstate commerce.  Given the presence of some authority arguably supporting the theory underlying each side’s position, this Court cannot conclude at this stage that the Complaint fails to state a cause of action.  Commonwealth ex rel. Cuccinelli v. Sebelius, 702 F. Supp. 2d 598, 615 (E.D. Va. 2010).

As a result, the lawsuit will move forward and we must await the Court’s decision after thorough examination of the issues.  For more detailed analysis of the issues raised in the motion and the Court’s review of the issues, the Memorandum Opinion is Document 84 of Case 3:10CV188-HEH in the United States District Court for the Eastern District of Virginia—Richmond Division.

            State of Florida Challenge and 19 other States       

The next challenge occurred in Florida where twenty states (including Texas) similarly argued that the requirement on individuals to purchase health insurance is beyond the scope of the Commerce Clause, along with other claims.  Once again the Government responded to the lawsuit by filing a motion to dismiss the case.  As was the case in Virginia, the Court denied the Government’s motion as to the claim involving the Commerce Clause, finding that there was a plausible claim to allow the lawsuit to proceed.  Once again, we will have to wait for a thorough examination of the issues before we get a final decision by the Court.  For more detailed analysis of the issues raised in the motion and the Court’s review of the issues, the Memorandum Opinion is Document 79 of Case 3:10-cv-00091-RV-EMT in the United States District Court for the Northern District of Florida—Pensacola Division.

            State of Michigan Challenge

           Finally, in Michigan, the Thomas More Law Center and four individuals filed a complaint and an injunction against the Government to prevent the application of the mandate requiring individuals to obtain health insurance.  After a thorough analysis of the Commerce Clause and the power to tax for the general welfare, the Court denied the injunction and dismissed the claims against the Government relating to these two clauses. The Court found that the Government’s regulation of individuals requiring the purchase of health insurance falls within the purview of both the Commerce Clause and the power to tax for the general welfare.  For more detailed analysis of the issues and the Court’s review of the issues, the Order Denying Plaintiffs’ Motion for Injunction and Dismissing Plaintiffs’ First and Second Claims for Relief is Document 28 of Case 2:10-cv-11156-GCS-RSW in the United States District Court for the Eastern District of Michigan—Southern Division

It is important to understand the implications of these constitutional challenges.  These challenges are narrowly focused on a single issue within the much larger legislation.  Even if all challenges are successful, it would not necessarily mean that the entire legislation would be unconstitutional.  It could be that the single provision mandating individuals to have health insurance would be struck down while the rest of the Health Care Reform is left in place.  Of course, this provision is so integral to the overall reform that it may indirectly result in the legislation collapsing.  Given the differing opinions in the Courts as described above, it will be some time before we have any resolution to these issues.  It is likely the Supreme Court will be required to review the issues in order to make a final determination.

By Michael S. Byrd and Bradford E. Adatto with significant contribution to this article by Jay D. Reyero



[1]It should be noted that this does not relate to the requirement under Section 102.006 of the Texas Occupation Code that a person commits an offense if the person accepts remuneration to secure or solicit a patient or patronage for a person licensed, certified, or registered by a state health care regulatory agency and does not, at the time of initial contact and at the time of referral, disclose to the patient: (A)  the person's affiliation, if any, with the person for whom the patient is secured or solicited; and (B) that the person will receive, directly or indirectly, remuneration for securing or soliciting the patient.

[2]Suppliers are defined as physicians or other practitioners, facilities, or other entities (other than a hospital, critical access hospital, skilled nursing facility, comprehensive outpatient rehabilitation facility, home health agency, or hospice program) that furnish MRI, CT, or PET services.

[3]It should be noted that the Health Care Reform provides that the list of suppliers should be created based on a radius extending from where the patient resides.  However, CMS acknowledged the administrative burden this could cause and the fact that patients may travel outside their residing area to seek medical care.  Therefore, CMS proposed a radius from the physician’s office location.


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